What my kids waffle-shop can learn you about business models

Last summer my kids put up a stand to sell fresh waffles in the backyard, and I often use their lovely concept to explain to new travel entrepreneurs how they can get started with their business. With or without money to start with.

It doesn’t matter whether you’re a tour operator, a tech company, or anything in between—these simple principles apply anywhere.

Here’s the thing: When you start a business, you usually begin with some money to buy assets. In the case of a backyard waffle shop, that means ingredients like sugar, flour, milk, and butter. From this, you make waffles that you sell to get money back. Let’s say you start with 100 NOK and sell waffles for 200 NOK. This is the simplest cash-based model. The cash becomes assets, and the assets become cash.

But, nowadays, businesses use to work on credit instead of cash. Let me explain this model.

Let’s say you love my kids’ waffles and come by their shop every opening day. But instead of paying cash each time, you want to receive an invoice to pay at the end of the month. So, my kids start again with 100 NOK to buy ingredients. They sell the waffles, bringing in 200 NOK, but they don’t get any cash because you’ll pay at the end of the month.

This means that to continue operating the waffle shop, my kids need 3000 NOK before they get a single payment. They might need to borrow money or have an investor (probably me) to get the business running. Think about it, the only difference is how and when payment is made. Do you see where I’m going with this?

Now, let’s look at another business model. You still love the waffles, but now my kids offer a waffle subscription. If you pay in advance, they’ll customize the waffles to your preferences, perfectly fried and topped with your favorite jam.

Now, they don’t need 100 NOK to start with, because you’ve already paid 6000 NOK upfront. Each day, they’ll take out 100 NOK from the prepaid subscription to buy ingredients and make your waffles.

It’s the same waffle shop, the price is the same, the ingredients are the same, but the time of payments is completely different. A simple example, but hopefully, you see the difference. Choosing your business model can dramatically affect how much external financing you need. If you don’t have the money, make sure you get paid upfront.

You know you’ve got a good business when customers want to buy your product. That’s the time to scale up. When customers love what you’re offering, you’ve reduced the risk for external investors, which puts you in a stronger position. Then, you can start calculating your needs: equipment, team, location, etc.

My kids’ waffle shop didn’t last long, summer ended, and school started. But they made it work for them, financing things they wanted to do. And, in the end, they had a better business model, because I paid for the ingredients.